Increasing Volatility Seen in Domestic Petroleum and Chemical Markets in October - POLICY, ECONOMY & FINANCE

Increasing Volatility Seen in Domestic Petroleum and Chemical Markets in October

Feng Shiliang, CPCIA

An analysis by the China Petroleum and Chemical Industry Association (CPCIA) shows production in China's petroleum and chemical sector continued to fall in October. The gross production for petroleum and chemical sector totaled RMB551.71 billion (based on current prices) in October, up 18.5% year-on-year, which is 3.7 percentage points lower from last year's, also represented the lowest this year. It was 6.6 percentage points lower from September's.
    Among them, the industrial production for the chemical sector totaled RMB294.24 billion, up 14.8% year-on-year. The growth rate fell 14.2 percentage points from October, 2007 and 10.3 percentage points from this September. The production for oil/gas exploration sector achieved RMB84.45 billion, up 27.8%, which is lowering 3.9 percentage points from the previous month. For the refining sector, the production registered at RMB158.16 billion, up 17.8% in annualized terms. But the growth rate retreated 1.1 percentage points month-on-month. In the equipment manufacturing sector, industrial production rose 66.8% year-on-year to RMB14.86 billion, but the rate fell 7.1 percentage points from September.
    In October, 41 or 59.4%, among the 69 key petrochemical products tracked by CPCIA saw declining production. In September, the number was 39.
    All together there were 29 233 SCALE enterprises (all state owned and non state owned but with annual sales exceeding RMB5 million) in the petrochemical and chemical industries in October, 5 more from September and 2 142 more from October 2007. Accumulated industrial production totaled RMB5.58 trillion in January-to-October period, up 30.3% year-on-year.

1. Crude oil output growth accelerates while natural gas growth keeps slowing down

China produced 16.35 million tons of crude oil in October, the highest monthly output this year and up 3.9% from a year earlier, which was 2 percentage points higher than a year earlier and 1.4 percentage points higher from September. Natural gas output was 6.26 billion cubic meters, up 4.2% from a year earlier, which was 20 percentage points lower than a year earlier and 2.4 percentage points from September. China processed 29.789 million tons of crude oil, up 7.0% year-on-year, lifting 3.3 percentage points from September. And China produced 18.276 million tons of oil products this October, up 11.1% from a year earlier and it grew 10.7% this September.

2. Substantial decline in fertilizer output

Because of weak exports and off-season effects, fertilizer production (by nutrient ingredient) was sharply down 9.9% to 4.598 million tons in October. Among them, nitrogenous fertilizers output was down 5.7% at 3.419 million tons, phosphate fertilizers production plunged 21.7% to 924 000 tons, potash fertilizer output declined 14.9% to 254 000 tons and ammonium phosphate fertilizers output plunged 38.4% to 859 000 tons on physical weight. Urea production was stable at 2.198 million tons, up 0.5%.
   Pesticide production rose 3.3% to 129 000 tons in October, and totaled 1.596 million tons in January-October period, up 15.4%, underscoring stable growth.

3. The costs for coal-based chemical business surges, output shrinks

Investment in the coal-to-chemicals projects kept rising this year, mainly in areas such as coal-to-liquids, coal gasification (mainly coal to methanol and synthetic ammonia), and coal coking. But due to the sharp decline in crude oil prices, the costs pressure for coal-to-chemicals surged, resulting in steep decline in production. China's October methanol production only rose 3.9% to 1.009 million tons. The growth rate was lowest in recent years, compared to 42.6% a year earlier and September's 19.6%.
    The price of dimethyl ether has been declining since October, following the drop in liquefied petroleum gas prices. At present, the operating rate of domestic dimethyl ether plants averaged below 35%.

4. Lower production for basic chemical products

In October, China produced 3.681 million tons of sulfuric acid, down 22.5% from a year earlier; 134 000 tons of nitric acid, down 28.8%; 157 000 tons of caustic soda, down 12.7%; 841 000 tons of calcium carbide; down 39.4%; 884 000 tons of ethylene, down 3%; 340 000 tons of pure benzene, down 2.6%; 21.306 million pieces of radial tires, down 2.2%.

5. Export delivering value tumbles

Export delivering value in the Petroleum and Chemical industry totaled RMB35.52 billion in October, up 7.6% year-on-year. This was the lowest over the recent years and compared with the 26% growth in September. During January to October, the export delivering value was RMB361.406 billion, up 19.9%. But the growth rate was 2.5 percentage points lower than a year earlier.

6. Organic chemical materials and synthetic resin sectors incur losses

Squeezed by import products, domestic organic chemical products and synthetic resin production kept declining. In October, ethylene production fell 3% and that of synthetic resin was down 11%, in which PVC plunged 33%. According to incomplete statistics, 60% of domestic production for phthalic anhydride has been idled by the end of October, 50% for plasticizer capacity, 50% for o-xylene, and over 45% for PVC. The operating rate for the ethylene sector fell 30%, so did that for polyethylene and polypropylene. The entire organic chemical materials and synthetic resin sectors have been in the red.

7. Production halts spread among fertilizer makers

The sales-output ratio kept falling to 92.5% in October, down 6.1 percentage points year-on-year and 0.4 percentage points month-on-month. Among them, the sales-output ratio was only 79% for phosphate fertilizer, down 17.6% phosphate fertilizer year-on-year and 6% month-on-month. Meanwhile, fertilizer inventory remain high, with that of diammonium phosphate (DAP) at 1.91 million tons at October-end, monoammonium phosphate (MAP) at 900 000 tons, compound fertilizer at around 1.8 million tons. And based on a survey of 112 medium and large nitrogenous fertilizer enterprises, urea inventory totaled 1.289 million tons, up 28% on year, and representing 63% of its combined annual output. As of early November, the ex-factory prices were below RMB1 800 a ton for urea and around RMB3 300 a ton for DAP, underscoring a still sever condition for the fertilizer industry. According to a survey on China's 190 nitrogenous fertilizer makers conducted by the China Nitrogen Fertilizer Industry Association at October-end, 40 companies, or 21.2%, have stopped production.

8. Chemical market remain volatile, prices hovering low

In November, prices for calcium carbide, PVC and soda ash have dropped sharply. In October, average price fell 19.3% month-on-month for propylene, 20.2% for toluene, 28% for styrene, 22.5% for low density polyethylene, 19% for polypropylene, 16.7% for caprolactam and 16.7% for natural rubber. Prices for inorganic products including sulfuric acid, nitric acid and sulfur which had surged earlier are now hovering low.
   CPCIA expects that the production growth for the petroleum and chemical industries will continue to slow down in the last two months of the year, before entering a stable low growth period in the first quarter next year.

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